Defending global essentials: Notes from Kyoto

While 1.1 billion people do not have access to safe drinking water and almost 2.4 billion do not have adequate sanitation, according to the United Nations Development Program (UNDP), only 1.6 percent of development assistance is spent on providing water and sanitation services. Over 2.3 billion people suffer from water-related diseases, and it is the leading cause of death in the world.

The Third World Water Forum (WWF) in Kyoto, Japan, from March 16 to March 23, failed to address the most important issue in the water crisis: Providing populations, especially the needy, with access to water.

The main message from various related fora prior to Kyoto was clear: The most essential component in harnessing water’s potential is to implement reforms in water-related sectors — water resources management, water supply and sanitation, irrigation and drainage, hydropower and water/environment — and of course, to increase investments from the private sector. What does this imply?

To the private sector, the gloomy arithmetic of water — as highlighted at the second World Water Forum (WWF) gathering in the Hague in the Netherlands — is also the “gloomy arithmetic of water financing”.

The proposal of the chairman of the World Panel on Financing the Global Water Infrastructure, Michel Camdessus, titled Financing water for all, was released at the end of the third WWF gathering to finalize the sequel.

The proposal, however, was rejected strongly by non-governmental organization (NGO) activists at a massive demonstration during and after the international panel. They accused Camdessus, the former managing director of the International Monetary Fund, of being a liar. Why?

First, Camdessus argued that there was widespread agreement that the flow of funds for a water infrastructure had to roughly double in size, with the increase to come from all sources.

Yet this is difficult when public agencies such as governments have not really prioritized their water sectors because the sector tends to be decentralized. Hence the need for reforming water-related institutions if they are to absorb increased funding.

Sustainable cost recovery is essential, both from generating more internal funds and creating a stable framework for future revenue transfers.

Second, to reach this goal, responsibilities for water have indeed been delegated to local bodies, but without conferring enough power, human resources and funds to make it work. Thus, local community organizations and local businesses, vital to the task of improving services, need resources and the power to do this.

Third, although international loans and equity investment in water have been low and falling, banks and private companies are more aware than ever of the risk-reward tradeoff. Official aid for the water sector has also been falling, but there are good prospects for reversing this.

The sovereign risk of projects, including the foreign exchange risk, is a key disincentive that has to be addressed if water projects in emerging markets are to attract international loans and equity.

The three basic notes in the proposal look very moderate, but the implication would entail the following issues: (a) central government action, (b) local government and water authorities, (c) promoting local capital markets, (d) sustainable cost recovery, (e) increasing managerial capacity, (f) corruption and ethical practices and (g) the legal and regulatory environment — as quoted from Camdessus’ proposal.

And these following schemes — which are imperative — are the very core of the idea on how to finance the projects. These involve: (1) official development assistance, (2) multilateral finance institutions, (3) international commercial lending, (4) export credit agencies, (5) private investment and operation and (6) community initiatives.

All these schemes assume a mutual public-private partnership. But since water in this context is treated as a commodity, the market logic would easily undermine the water sector itself. Public and private partnerships would mean reinforced privatization.

A quick analysis of Camdessus’ proposal shows that if those schemes are to apply, the main thing imposed would be opening up the water sector with schemes 1, 2, 3 and 4, so that the private sector would be able to take over in schemes 3, 4, 5 and 6. Again, the classic arguments would be that the state has been comparatively inefficient, ineffective, bureaucratic and corrupt.

The argument that the private sector would reduce the price of water because of competition — the main themes of b, d and g — fails to recognize that the real competition is absent. What is present is the concession among private players to share the market, such as in the main themes of c, e and g.

To understand this proposal one has to seek the answers rooted in the General Agreements on Trade in Services (GATS).
In GATS, all public services — communication, water, health, energy, transportation, education, housing and tourism — are treated according to market rules. Here lies the fundamental problem, as not all such services are commercial.
Water, health, education and energy are essential to life.

Minister of Settlement and Regional Infrastructure Soenarno said Indonesia had won a US$15 million debt-for-nature swap from Germany during the Kyoto forum. This was part of a $321.89 million debt-for-nature swap that Indonesia was seeking from Germany, France, Canada, Italy, Spain and Finland during the forum.

The debt swap is to be used to assist water-related projects, such as environmental conservation and food security programs. In particular, it is to be used for coping with water pollution in Garut, West Java and in Pekalongan, Central Java, rural irrigation development and the improvement and rehabilitation of ground water pumps in several other regions.

We should welcome this achievement in securing the debt swap, but this is just one aspect. The biggest loss for common people is that Indonesia will be opened up to private sector management of water resources. This was done without the government putting up any defense, as if there were no other alternatives to privatization.

The key alternative would be public participation, in addition to transparency and accountability of water resource management for the sake of efficiency. The most important principle is that people should not be treated merely as consumers of water — and that water provision is the role of public agencies, such as the government and state-owned firms. Low public confidence in these agencies is understandable given their lack of transparency, and accountability and widespread corruption so far.

Yet there are alternatives to privatization. There are successful cases of people’s participation in water resource management in Porto Allegre and Cochabamba of Latin America, and in Bangladesh and Ghana. Local examples include the provision of water in communities along the riverbanks of the Sungai Serayu, which flows through Central Java, or the model of the Subak traditional irrigation system in Bali.

As such, we can understand the words of the activists as they shouted at Camdessus, “Water is for life, not for profit!”

The writer attended the recent Third World Water Forum in Kyoto. He is the Executive Director of the Business Watch Indonesia, lectures at the Sahid University in Surakarta and is a researcher at Uni Sosial Demokrat, Jakarta.